How will medical marijuana affect real estate? A Pa. lawyer explains

Dispensaries and growers seek properties to set up shop

Montgomery County >> As medical marijuana growers and dispensaries gain state approval, the approaching medical marijuana wave in Pennsylvania will impact other businesses, as well, including the commercial real estate market, as growers and dispensaries rent or buy properties for their businesses.

For example, in California one 10-acre property with a greenhouse that had been bought for $2.5 million sold for $5 million last year. And by 2015 there were close to 200 retail cannabis shops in Denver, Colo. These facts were part of a recent talk given by Lansdale lawyer William G. Roark hosted by the Suburban West Realtors Association, Montgomery County Development Corporation and CCIM. Roark represents several clients who are trying to establish themselves in the nascent Pennsylvania medical marijuana business, including a client who was recently awarded a state license to grow the plants.

Although medical marijuana was recently legalized in Pennsylvania, it remains a Schedule 1 illegal narcotic under federal law. At the moment, however, Roark believes prosecutions are unlikely because in 2014 Congress stripped funding for prosecutions for medical marijuana, although not recreational marijuana.

“I’m never going to tell my clients they have nothing to worry about,” Roark said. And at the moment there is a “different tone” coming from the Trump justice department than its predecessor, he said.

However, a 2016 decision by the 9th Circuit, U.S. vs McIntosh, “prohibits [the] DOJ from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by the state Medical Marijuana Laws and who fully complied with such laws.” But that ruling is limited to the 9th Circuit, which covers some western states and is not binding in Pennsylvania.

In remarks to Congress in May, Attorney General Jeff Sessions asked for funding for medical marijuana prosecutions, “admitting he can’t do it right now, Congress isn’t giving him the funding,” Roark said.

“Right now his hands are tied and can only be untied by Congress,” said Roark.

So, there is a possibility that prosecutions could resume and then, “yes, there is a great risk you won’t see a return on your investment.” Even so, “It might be a long time until you see a return on your revenue.”

Many municipalities have been caught off guard by the changes that allow medical marijuana and don’t know quite what to do, he said. But zoning changes are not really needed since both dispensaries and growers must meet the same requirements as other businesses. Municipalities can add them as a permitted use. Marijuana dispensaries can be a permitted use for areas zoned for commercial activities and growers can be housed in areas zoned industrial. All grow operations will be indoors and very strict security governs both businesses, under the new state law. Also, those who submitted applications for permits needed to identify property where their businesses will be located in order to gain state approval and those locations must be at least 1,000 feet from a school or daycare. Landlords are not required to rent to a medical marijuana facility if they don’t want to.

Roark also downplayed any possible increase in crime at the dispensaries or growers. Each applicant had to supply detailed security plans with 24-hour monitoring. Many will get their local police departments involved and permit the police to tap into the security camera feeds, he said.

“No more so than the Budweiser truck or a truck pulling up to a CVS delivering opioids,” Roark said, when asked about the risk of crime. “Anyone who thought that they could grab a marijuana plant is going to be disappointed.”

There are requirements for dispensaries to have a “secure, out-of-sight location for unloading marijuana” products, such as a loading bay or a garage, he said. So that can rule out locations in some strip malls, he said. Many applicants hired consultants to help them find spots.

“You have to take the most restrictive approach possible,” Roark said.

For phase one, 10 applications for dispensaries and two for growers/processors are slated to be approved by the state Health Department for the southeast region that includes Philadelphia and seven nearby counties. However, each approved dispensary license allows owners to open at three locations.

One thing that can be problematic for would-be growers and dispensary owners seeking to buy properties is obtaining title insurance. One of the larger title insurance companies, Chicago Title, sent out a memo that said in part: “Under no circumstances do we sanction your involvement or handling of any settlement, closing, escrow or other funds of any type. Cash is sometimes a clue that this could be a transaction under discussion. We will not issue any type of closing protection letter.” Their title agents are barred from taking part in settlements but title insurance can be issued with an exemption included regarding “the violation or enforcement of any federal, state or local law relating to the use of the land.”

Banking can also be problematic in this brave new world, he said. Many federally chartered banks will not handle medical marijuana money so the nascent business must look to smaller, state chartered banks “with more progressive management teams,” said Roark. In other states with booming marijuana businesses, sooner or later, “a bank comes in and provides those services for the marijuana industries,” Roark said.

“Most dispensaries bring in an ATM or run a debit card (for customer payments),” he said. However, there are bills pending to “open up the banking laws to this industry,” he said.

Roark, of Gwynedd Valley, a lawyer with Hamburg, Rubin, Mullin, Maxwell & Lupin in Lansdale, chairs the firm’s medical marijuana law practice. Because he’s been at the forefront of the legislative development on this topic, he’s been asked to give educational seminars to other professionals. He is also co-chair of the Pennsylvania Bar Association’s Medical Marijuana and Hemp Law Committee. A graduate of Bucknell University who earned his law degree with honors from Villanova University, he is also an active member of the Montgomery County Bar Association.